It Starts With China, part the first

Applying the 2.2% CAGR percentage for energy consumption that the EIA assigned (in 2010) to the developing countries, they project that China will consume 162.7 quads in 2030. (Like the U.S., China consumed 100 quads in 2010.) I think that China will consume 246.6 quads in 2030. The difference—83.9 quads—is enough to change everyone’s vision of the future, if it is true. China has put forward an incredible plan for growth of its energy infrastructure. If it is based on the highly respected EIA projections, it may not be sufficient for their needs.

China’s annual growth in GDP from 2000 to 2010 averaged 9.9%. Their consumption of energy grew over the same period of time at a 9.57% compound annual growth rate (CAGR). If they merely maintain that for the next few years, the EIA’s projections are bound to fall short of their projected totals.

The EIA in fact is predicting an astonishing slowdown for China’s energy consumption over the next 25 years, something that would be as dramatic and profound as their recent growth. As they assume China’s economy will continue to grow at a robust rate, this should be explained. As yet, it has not been.

Evidence that the EIA’s underlying assumptions in energy projections should be challenged comes from widely reported statistics regarding China’s growth. China’s energy consumption grew 11.5% in 2010 alone, and they have marked out a path for growth that has energy consumption double between 2010 and 2020. Even if the EIA were broadly correct in predicting a fall-off in China’s energy consumption, missing the start of the decline renders their analysis useless for those charged with preparing the infrastructure needed for Chinese children—and ours.

Clearly, over-reliance on CAGR can be a trap, especially when dramatic change is part of a forecast. But for those charged with making plans for the medium term future, it is probably not nearly as important to precisely delineate the rate of change as it is to show broadly correct totals at various points on a continuum. Is there another way of projecting energy consumption that is more closely tied to reality? I think so.

The EIA also breaks energy consumption out on a per capita basis. This is quite useful, as with a bit of cross checking against future populations and projections for GDP, we can analyze, for example, China’s projected energy consumption in the future by comparing it to the energy consumption of a country that is at that level of development today. Energy figures used in this exercise come from Table E.1, World Primary Energy, International Energy Annual 2006, updated August 2009, with projected GDP figures coming from the U.S. Department of Agriculture’s Economic Research Service. Population figures come from a variety of sources, including the U.N. Population Division and national census offices. Information about the developing countries used as examples for comparison come from a wide variety of sources—including Wikipedia, the CIA World Factbook and Nationmaster.

Because the GDP projections used in this study do not extend beyond 2030,I now change our focus on growth of energy and GDP from 2035 to 2030. As almost all of the media coverage given the EIA’s projections use their headline 2035 end-dates, readers should note this.

By combining current data on per capita GDP and per capita energy consumption, we can perform an interesting comparison that may provide more accurate projections. More importantly, we are not obliged to provide a date certain for this growth. It doesn’t matter if their per capita GDP or energy consumption happens in 2020 or 2040—we can say that when their level of economic development reaches a certain stage, it is quite likely that their energy consumption will be near a value that we can estimate today.